Audit Final Exam 117 Questions with 100% Correct Answers. 2022/2023 update. graded A

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Audit Final Exam 117 Questions with 100% Correct Answers Which of the following statements best describes a relationship between sample size and other elements of auditing? A. If materiality incre... ases, so will the sample size. B. If the desired level of assurance increases, sample sizes can be smaller. C. If materiality decreases, sample size will need to increase. D. There is no relationship between sample size and materiality or the desired level of assurance. -Ans-C The basic purpose of a financial statement audit is to A. Detect fraud. B. Examine individual transactions so that the auditor may certify as to their validity. C. Provide assurance regarding whether the auditee's financial statements are fairly stated. D. Assure the consistent application of correct accounting procedures. -Ans-c Assurance services may improve all of the following except A. Relevance. B. Credibility. C. Periodicity. D. Reliability. -Ans-c Which of the following best describes the concept of audit risk? A. The risk of the auditor being sued because of association with an auditee. B. The risk that the auditor will provide a "clean" opinion on financial statements that are, in fact, materially misstated. C. The overall risk that a material misstatement exists in the financial statements. D. The risk that auditors use audit procedures that are inappropriate -Ans-b During the first phase of an audit, a CPA most likely would A. Identify specific internal control activities that are likely to prevent fraud. B. Evaluate the reasonableness of the company's accounting estimates. C. Evaluate the integrity of management. D. Inquire of the company's attorney as to whether any unrecorded claims are probable or asserted. -Ans-cWhich of the following best describes the fundamental, underlying reason for why there is demand for an independent auditor to report on financial statements? A. A management fraud may exist and it is more likely to be detected by auditors if they are independent. B. Different interests may exist between the company preparing the statements and the parties using the statements. C. A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated. D. A poorly designed internal control system may be in place. -Ans-b Which of the following would best be described as an assurance service? A. Preparing a report representing a client's position during an IRS audit. B. Working with a company to develop a more efficient method of processing financial transactions. C. Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies. D. Assisting a company in identifying potential sources of capital for potential acquisitions -Ans-c Auditors are most likely to use the most rigorous audit procedures to examine A. Routine transactions. B. Management assertions that are deemed to be of low risk . C. Only the rights and obligations assertion. D. Management assertions that are deemed to be of high risk. -Ans-d When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to A. Identify areas of relatively high risk of misstatement and plan the audit accordingly. B. Provide suggestions for improvement to the company. C. Serve as a basis for setting audit risk and materiality. D. Decide whether to perform an audit for the company. -Ans-a Which one of the following statements best describes the concept of materiality? A. Materiality is determined by reference to specific quantitative guidelines established by the AICPA. B. Materiality depends only on the dollar amount of an item relative to other items in the financial statements. C. Materiality depends on the nature of an item but not on the dollar amount of the item. D. Materiality is largely a matter of professional judgment. -Ans-d Before accepting an engagement to audit a new entity, an auditor is required toA. Make inquiries of the predecessor auditor. B. Tell the company whether or not the auditor is willing to issue a "clean" opinion. C. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. D. Become a member of the entity's board of directors. -Ans-a An auditor would issue an adverse opinion if A. The auditor encounters adverse attitudes toward the auditor on the part of company management. B. A qualified opinion cannot be given because the auditor is not qualified to do so. C. An immaterial misstatement is present. D. The statements taken as a whole do not fairly present the financial condition and results of operations of the company -Ans-d What organization is responsible for setting auditing standards for audits of publiclytraded companies in the U.S.? A. AICPA. B. FASB. C. GASB. D. PCAOB -Ans-d The Public Company Accounting Oversight Board's role is to A. Conduct the final review of auditors' work before the auditor's opinion is issued. B. Oversee the auditors of public companies in order to protect the interests of investors. C. Conduct audits of governmental entities. D. Sanction auditors who fail to follow GAAS -Ans-b The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of A. The stock exchange officials. B. The independent auditor. C. The company's management. D. The Securities and Exchange Commission -Ans-c Due professional care requires auditors to A. Obtain independent, third party (non-auditee) documentation as evidence for all information presented in the financial statements. B. Exercise professional skepticism during the audit.C. Disregard any evidence generated by the auditee during the audit. D. Find every error contained in the financial statements prepared by management - Ans-b The objective of the second PCAOB Standard of Reporting is to provide assurance that A. There are no variations in the format and presentation of financial statements. B. Substantially different transactions and events are not accounted for on an identical basis. C. The auditor is consulted before material changes are made in the application of accounting principles. D. The comparability of financial statements between periods is not materially affected by changes in accounting principles that are not disclosed. -Ans-d Which of the following best describes the role of corporate governance? A. Management decides which accounting principles are the most appropriate. B. Shareholders vote to decide who should be members of the board of directors. C. Holding the management team accountable to shareholders and other constituents for the utilization of the entity's resources. D. Management often is compensated based on the company's profitability -Ans-c Which of the following best describes what is meant by generally accepted auditing standards? A. Audit assertions generally determined on audit engagements. B. Acts to be performed by the auditor. C. Standards of quality for the auditor's performance. D. Procedures to be used to gather evidence to support financial statements. -Ans-c Evaluating a prospective client requires which of the following steps? A. Communicate with the predecessor auditor. B. Preplan the audit. C. Establish the terms of the engagement. D. None of these -Ans-a Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement? A. Analysis of balance sheet accounts. B. Analysis of income statement accounts. C. All matters of continuing accounting significance. D. Facts that might bear on management integrity. -Ans-dTo emphasize auditor independence from management, publicly traded corporations are required to A. Appoint a partner of the CPA firm conducting the examination to the corporation's audit committee. B. Establish a policy of discouraging social contact between employees of the corporation and the independent auditors. C. Request that a representative of the independent auditor be on hand at the annual stockholders' meeting. D. Have the independent auditor report to an audit committee of independent members of the board of directors. -Ans-d An auditor obtains knowledge about a new client's business and its industry in order to A. Make constructive suggestions concerning improvements to the client's internal control. B. Develop an attitude of professional skepticism concerning management's financial statement assertions. C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. D. Understand the events and transactions that may have an effect on the client's financial statements -Ans-d Under Statements on Auditing Standards, which of the following would be classified as an error? A. Misappropriation of assets for the benefit of management. B. Misinterpretation by management of facts that existed when the financial statements were prepared. C. Preparation of records by employees to cover a fraudulent scheme. D. Intentional omission of the recording of a transaction to benefit a third party -Ans-b The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such an error does exist is referred to as A. Sampling risk. B. Detection risk. C. Nonsampling risk. D. Inherent risk. -Ans-b When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the A. Extent of tests of controls.B. Level of detection risk. C. Extent of substantive tests. D. Level of inherent risk. -Ans-c In general, material frauds perpetrated by which of the following are most difficult to detect? A. Internal audit function. B. Keypunch operator. C. Cashier. D. Controller. -Ans-d The primary responsibility for preventing fraud in an organization lies with A. The audit committee of the board of directors. B. The internal audit function. C. The external auditor. D. The organization's management -Ans-d The acceptable level of detection risk is inversely related to the A. Extent of the substantive procedures. B. Risk of misapplying auditing procedures. C. Overall materiality. D. Risk of failing to discover material misstatements -Ans-a As the acceptable level of detection risk decreases, an auditor may change the A. Timing of tests of controls by performing them at an interim date rather than at yearend. B. Nature of substantive procedures from less effective to more effective procedures. C. Timing of tests of controls by performing them at several dates rather than at one time. D. Assessed level of risk of material misstatement to a higher amount. -Ans-b As the acceptable level of detection risk decreases, the assurance directly provided from A. Substantive procedures should increase. B. Substantive procedures should decrease. C. Tests of controls should increase. D. Tests of controls should decrease -Ans-a When auditing contingent liabilities, which of the following procedures would be least effective?A. Reading the minutes of the board of directors. B. Reviewing the bank confirmation letter. C. Examining customer confirmation replies. D. Examining invoices for legal services. -Ans-c If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should A. honor the confidentiality of the client-lawyer relationship. B. consider the refusal to be a scope limitation. C. seek to obtain the corroborating information from management. D. disclose this fact in a footnote to the financial statements. -Ans-b Which of the following situations would require adjustment to or disclosure in the financial statements? A. A merger discussion. B. The application for a patent on a new production process. C. Discussions with a customer that could lead to a 40 percent increase in the entity's sales if agreement is successful. D. The bankruptcy of a customer who regularly purchased 30 percent of the company's output -Ans-d Which of the following procedures should an auditor generally perform regarding subsequent events? A. Compare the latest available interim financial statements issued after year-end with the financial statements being audited. B. Send second requests to the entity's customers who failed to respond to initial accounts receivable confirmation requests. C. Communicate material weaknesses in internal controls to those charged with governance. D. Review the cutoff bank statements for several months after year-end -Ans-a Which of the following items should an auditor communicate to those charged with governance in a publicly traded company? A. Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters. B. Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters. C. Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company. D. Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters -Ans-aWhich of the following procedures would an auditor ordinarily perform during the review of subsequent events? A. An analysis of related party transactions for the discovery of possible irregularities. B. A review of the cut-off bank statements for the period after the year-end. C. An inquiry of the entity's legal counsel concerning litigation. D. An investigation of material weaknesses in internal control previously communicated to the entity. -Ans-c Which of the following expressions is least likely to be included in a management representation letter? A. No events have occurred subsequent to the balance sheet date that require adjustment to or disclosure in, the financial statements. B. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. C. Management acknowledges responsibility for illegal actions committed by its employees. D. Management has made available all financial statements and related data. -Ans-c Which of the following matters is an auditor required to communicate to those charged with governance? A. The basis for assessing control risk at low. B. The process used by management in formulating sensitive accounting estimates. C. The auditor's preliminary judgments about materiality levels. D. The justification for performing substantive procedures at interim dates. -Ans-b A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the A. chief executive officer and the chief financial officer. B. chief financial officer and the chairman of the board of directors. C. chairman of the audit committee of the board of directors. D. chief executive officer, the chairman of the board of directors and the entity's lawyer - Ans-a Communications between the auditor and those charged with governance should include all of the following except: A. a summary of specific audit procedures used. B. significant audit adjustments. C. consultations with other accountants. D. major issues discussed with management before the auditor was retained -Ans-aWhich of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements? A. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. B. A contingency is resolved that had been disclosed in the audited financial statements. C. New information is discovered concerning undisclosed lease transactions in the audited period. D. A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold. -Ans-c Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with A. an estimate of the dollar amount of the probable loss. B. an expert opinion as to whether a loss is possible, probable, or remote. C. information concerning the progress of cases to date. D. corroborative inquiries made of the entity by the auditor -Ans-d The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with A. a description and evaluation of litigation, claims, and assessments that existed at the date of the balance sheet. B. an expert opinion as to whether a loss is possible, probable, or remote. C. the opportunity to examine the documentation concerning litigation, claims, and assessments. D. corroboration of the information furnished by management concerning litigation, claims, and assessments. -Ans-d Which of the following statements is correct about an auditor's required communication with management and those charged with governance? A. Any matters communicated to those charged with governance are also required to be communicated to the entity's management. B. The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management. C. The auditor does not have any requirement to communicate with anyone outside of management. D. Weaknesses in internal control previously reported to tho [Show More]

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